The Future of Health — An Interview with Pierin Menzli About Investing in Human Health
COVID-19 has turned the world upside down. Or, to be more precise, it has amplified and accelerated certain trends and developments, while exposing the weaknesses of other areas of society and business.
Some business models, products and skills have become old fashioned over night in what has been a remarkable push towards digitalisation, agility and resilience.
One winner this year has been the healthcare sector, at least insofar that we now see very clearly the importance of it. And also better see the need to innovate and further develop this sector to respond to future needs and demands.
As such, the timing of the launch of JSS’ future health fund late last year seems almost uncanny. But even if COVID-19 hadn’t happened, the area of future health would have been both vital and extremely interesting looking ahead.
So — following the good response I got from my interview with Robin Rouger, another colleague of mine — I sat down with Pierin Menzli who’s the mastermind behind and Lead Portfolio Manager of J. Safra Sarasin AM’s new future health fund.
Here’s a transcript of the interview, edited for clarity and length.
IMPORTANT: Please read the disclaimer at the end. It’s important since a few companies are mentioned in the text, and this piece is not investment advise in any way. I chose not to leave out the company examples and names from the interview because I think they help clarify what we are talking about.
Sasja Beslik: Pierin, can you tell me a bit about yourself and your background?
Pierin Menzli: Certainly. I have a background in finance, more specifically in resource economics. Since the beginning of my professional career — which is to say for some 20 years — I’ve been working in sustainable finance in different roles, within in research, portfolio management and product development.
SB: Why do you work with investments?
PM: I just find it extremely exciting to do what we do. Which is, essentially, to allocate capital to innovative and impactful businesses. I want to invest in today’s and tomorrow’s winners on behalf of our clients.
SB: How would you describe the investment approach?
PM: The main focus is always the long term. There’s no doubt that our world will look very differently 10 years from now. So in our thematic investment approach, we emphasise structural long-term growth themes. These are things like future health, the green transition, changing consumer behaviours or technological breakthroughs.
I find this work to be very exciting. So coming back to why I work with investments… I think that’s why! And, of course, also because it’s exciting to make investment decisions that create value for our investors over time.
SB: You launched an interesting thematic health fund recently. Why?
PM: Yes, we launched our future health fund (JSS Sustainable Equity — Future Health, ed.) recently. We did so simply because of what I said before: We want to invest in the innovative and winning business models of tomorrow.
We see three structural drivers in the health market that make such investments very attractive: 1) The shift from patients to consumers; 2) the ageing population and related health care cost pressure, and 3) medical technological innovation.
In the fund, we want to invest in the future-oriented health businesses. And we do so in what you could call an unconstrained benchmark-free way. This is important because it enables us to invest in the best companies independent of size, regions or sector classification — and thereby deliver value to our clients.
SB: Can you give an example of what a ‘winner’ looks like from where you sit?
PM: Sure. The first example that comes to mind is a company called Horizon Therapeutics. They used to be a low margin specialty pharma business. But in recent years, they have focused more on orphan drugs with high unmet medical needs. They are currently in a very successful launch phase of a novel drug against a severe eye disease called Thyroid Eye Disease.
Because of the high unmet patient needs and the strong medical benefits, the launch of the drug — which has happened over the last few quarters — has been phenomenally strong.
SB: Ok, moving on to a more overall level now. What do you see in the world we live in today from a health perspective?
PM: As we’ve seen much too clearly with COVID-19, the human health market is critical for everyone. And right now there are tremendous innovations happening around how, where and when health is delivered to patients.
We see that the health services are moving closer to patients’ homes — or will even happen even in patients’ homes. Access to technology, data analytics and monitoring has paved the way to better care for patients at home.
One company in our portfolio to highlight here is Teladoc. They are the largest telehealth company globally. During COVID-19 the online health consultations via Teladoc’s network of doctors and technology has gotten a massive boost. Now the company is further moving into chronic and behavioural health management through intelligent acquisitions. We believe this company will become one of the digital health power houses going forward.
Another area of innovation has to do with creating much better convenience for patients. An example is continuous glucose monitoring for diabetes patients instead of testing blood glucose levels via finger pricking.
We have been a long-term investor in Dexcom which is the technology leader in continuous glucose monitoring (CGM). The company will expand its current addressable market further into less intensive diabetes patients by providing high patient convenience combined with insightful consumer health insights.
SB: Does the focus on health have to do with COVID-19? Is it just a kind of “Covid-washing” exercise?
PM: Definitely no. First of all, the future health fund was launched in November 2019, before the pandemic broke out. We didn’t foresee this pandemic. But the pandemic has of course stressed the importance of this innovation area, and our health expertise has helped us navigate the portfolio successfully through this pandemic.
Very early on we identified companies and industries that can bring solutions to COVID-19 patients. Specifically, we focused on business models in the life-science tools, home health and telehealth space. For example, the life science tool and diagnostics space has been given a massive boost since all health players — providers, payers and patients — have realised that prevention is a cost-efficient and health improving way to identify and treat diseases early on.
In this space we like companies with a razor-blade business model. This means they sell analytical instruments — comparable to the razor — that need an instrument upgrade every couple of years. At the same time the companies sell a wide range of life science products which run on their instruments.
In particular we like here companies such as Thermo Fisher or Danaher which offer a very broad range of life science tools and medical products. Both have a remarkable track record in making serial smart acquisitions which boost their growth profile further.
The COVID-19 pandemic has led to a remarkable split of winning and losing business models and accelerated existing health trends. We focus on companies and management teams who are capable of acting decisively and fast in a changing and challenging health environment.
SB: What is the most interesting thing about investing in health related companies?
PM: It’s a complex industry with many stakeholders involved — including regulators, payers, doctors, and well-informed patients. Therefore, it’s important that our investee companies can lower the health or administrative burden and offer simple health products and services which are easy to access.
We like business models with a high medical and technological moat. With agile and super-focused management teams. And with a value adding offering in the form of clear health benefits and/or lower health costs.
SB: What about sustainability? Are these companies sustainable as well? And if so… How?
PM: Most of our portfolio holdings are well aligned with improving patient health while lowering the costs to society and the individual. Therefore, our Future Health portfolio offers a good alignment with the Sustainable Development Goals.
In fact, our fund has received the highest sustainability fund rating because of the strong sustainability credentials of the underlying holdings. These good credentials are driven by good investor transparency and solid performance in regards to data privacy, human capital development and strong corporate governance.
SB: What makes this investment great?
PM: First of all, we invest in structural growth in multiple and selective health areas which will accelerate in the coming years. In addition to this we can navigate the portfolio through different economic cycles because of our unconstrained investment approach. And last but not least, we have a dedicated and multi-disciplinary investment team which brings health, consumer and technology insights together.
SB: Are you investing your own money in this?
PM: Yes, I am investing my own money in the fund. And I’m happy to say that I’m happy with the returns achieved so far.
Disclaimer: This is not investment advice. The information provided in this article is for information purposes and personal use only and does not consider the personal circumstances of any individual investor. It does not constitute a promotion, recommendation, inducement, solicitation, invitation or offer to acquire, hold or sell the financial instruments mentioned.
The information and opinions provided here neither constitute nor are they intended to be any type of advice or recommendations or intended as any kind of decision aids for investment or other decisions. It is explicitly recommended to seek your own individual expert advice before making any investment decision.
I (Sasja Beslik), the interviewed (Pierin Menzli) and our employer (JSS AM) accept no liability whatsoever for any loss or damage you may incur.
